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US buyout group Kohlberg Kravis Roberts has pledged its confidence in the flagging semiconductors industry by re-investing the proceeds of a divestment at portfolio company NXP in the remaining business units.

Sources close to the situation said KKR and its other buyout co-owners would re-invest the $1.6bn (€1bn) generated by a sale of NXP's wireless division to a rival. Some of the cash would be used to fund bolt-on acquisitions in a bid to consolidate the sector.

The deal earlier this week saw European semiconductors manufacturer NXP merge its wireless unit with those of rival STMicroelectronics to free up cash.

NXP is expected to use the money to build up its market share. A source close to the deal said: "KKR and its other co-investors saw opportunities at NXP to build the business further, some of which would see KKR as an active consolidator in the industry."

NXP has already bought three companies since its buyout by the consortium: Silicon Laboratories' cellular communications business, electronics group Sharp's BlueStreak microcontroller products unit and GlovNav, a GPS chip manufacturer.

The move came four months after KKR was forced to write down the value of its investment in the business. KKR Private Equity Investors, the firm's listed fund that co-invests alongside KKR's buyout funds on some deals including NXP, announced in a quarterly results statement on December 31 that it had written down its investment in the semiconductor group. KKR PEI said the value of the business had fallen to 0.75 times

The writedown added to the gloomy sentiment regarding the semiconductor industry - private equity-owned Freescale has struggled after former parent Motorola slashed its order book for example - but the NXP-STM wireless merger has paved the way for further consolidation within the sector.

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STM said in a statement that the businesses being merged had combined revenues of $3bn last year, while each had operating profit of about $100m. Cost synergies are expected to be about $250m from the merger, it said.

An NXP spokeswoman added: "Both companies have contributed their cellular modem, connectivity and multimedia businesses, required IP & patents, and know-how to the venture. For NXP this means about $1.5bn of revenue in 2007 of the Mobile & Personal business moves into the venture. Areas that will remain with NXP are: amplifiers, e-connectivity, sound solutions and power base stations."